Editor’s Pick
SEPTEMBER 29, 2008 6:41PM

Morals and Money

Rate: 13 Flag

We’ve heard lots of moralism about the economy recently from both ends of the political spectrum.  Wall Street is guilty of greed and homeowners in trouble are guilty of irresponsibility. Instead of offering a cogent systemic analysis of how we got into this financial mess, and the best way to change our economic and financial system in order to fix it, both parties seem to prefer preaching about the wages of sin. 

But while wagging a self-righteous finger while invoking the Seven Deadly Sins (in particular Greed, Envy, Sloth, and Pride, but we could also make a case for Gluttony and Lust) makes for good politics, it is a terrible way to approach the current crisis. 

We should not expect capitalists not to be greedy.  And we should not expect consumers to want fewer or less expensive goods, including fewer and less expensive homes and cars.

The desire for more, for bigger, and for better is not the enemy of capitalism. 

Unregulated capitalism is the enemy of capitalism.

What we should expect, and what we need, is for the economic and financial system to be structured by law and regulation to channel the desires of both capitalists and consumers for more, for bigger, and for better into productive, sustainable economic growth.

Moralism won’t get us there, and will distract us from seeing the problem for what it is: a matter of systemic, not moral or individual, failure.

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The desire for more, for bigger, and for better is not the enemy of capitalism.

Unregulated capitalism is the enemy of capitalism.


Great summary of the situation. I would only add that dysregulation (i.e., regulation that has gone horribly wrong, almost akin to a drug addiction) is also an enemy of capitalism. There is a fine razor's edge to walk to preserve the free market and capitalism *and* our democratic republic's ideals.

It takes a tough man to raise a tender chicken, as Frank Perdue used to say. That might have a sort of application here.
I worked at the SEC at the beginning of the dismantling of regulation in the trial unit. So I saw the cases that went to trial. It was clear to me then that it was going to get ugly. I had no idea how long it would take, but I knew that there are always those who will push it and they use the regulations like a skateboarder uses guard rail--as a barrier to be jumped.

"Unregulated capitalism is the enemy of capitalism." Indeed.
Unregulated capitalism is the enemy of capitalism?

That sounds awfully inconsistent. You seem to be placing consumers and sellers -- otherwise known as capitalists and workers -- on an equal footing. They aren't. The advantage is always with the seller/capitalist, in part because one fudamental assumption of capitalist markets is wrong -- consumers have nowhere near perfect information. In fact, it is in the interests and within the ability of firms of literally all sorts to withhold information from the market to advantage themselves.

If capitalism equires regulation, why do none of its proponents, from Adam Smith to Darrell Issa and everyone in between state the opposite -- that regulation is the enemy of capitalism?

You suggest looking at this crisis systemically. Go where the facts lead -- you'll be surprised.
Hmm. I hear where you're coming from but I feel you've missed the mark. Saying that a meltdown like this is a problem of failed regulation makes sense - provided you are looking at it from a regulatory, "what-could-a-government-do" standpoint. I mean, sure, it is foolish not to expect capitalists to act like capitalists and seek personal profit above all else, just as it is foolish not to expect a murderer to murder.

But this doesn't change the fact that the capitalists, like the murderers, can be morally accountable for the outcomes of their conduct. It's certainly true that it's pointless to blame "capitalism" as such for the kind of problems we're now seeing. Capitalism is just a concept; it's people that actually do things.

And while people are being capitalists, and responding to their inner profit motive, competing, and seeking to amass material wealth, they are also members of a community with moral responsibilities - such as a responsibility to note when matters are getting out of hand, and to prevent problems like those we're seeing today before they arise.

I fully agree that we would be idiots to actually expect this to happen. At a time when urgent action is required, it may not be very useful to blame those people for their actions. But even so, it is not nonsensical to do so.

Unregulated capitalism is not "the enemy of capitalism", it is actually capitalism in its purest form. Rather, unregulated capitalism is an enemy of free, decent, just, and equitable societies. Capitalism is ugly and brings out the worst in people more often than it brings out the best in them, and the less regulated it is the more it is prone to this. On the other hand, it is just about the only decent tool we have to drive progress. Therefore we must have it, but we must regulate it.

I realise this last bit sounds much the same as what you've posted, which is why I think I probably agree with you about where the solution lies. But I do think moralism has a role to play. I think we need to be very candid about just how problematic *and* immoral pure capitalism is. That is:

- the *only* kind of capitalism we want is regulated capitalism
- capitalism is not a goal in itself, it's a way of harnessing people's greed and using it for the good of all
- there is nothing admirable or morally upstanding about greed even if it's being harnessed for the greater good

My point, I guess, is that I agree that regulatory improvements are what are called for here, but that doesn't mean that a little moral headshaking is unwarranted. Such things as custom and moral standards affect how a segment of society functions, including the high-finance segment. Just as one example, it is a given that any new regulations will be susceptible to loopholes and being played, with businesses tailoring their behaviour to meet the regulations rather than the goals of those regulations. Corporate culture can make a huge difference to the extent of this - it can't replace the regulations, but it can either undermine or bolster them. Couldn't a bit of moralising help here?

(Sorry if that got a little bit meandering. This box is too darn small! Vote 1 bigger comment boxes!)
Unregulated capitalism allows for a quickening of the process of accumulation of capital and the concentration of wealth into fewer and fewer hands. It also allows capital to externalize costs such as pollution leading to global warming, poisoned water, deforestation, and species eradication. Even the cost of wars for expansion and for control of raw materials become externalized to the "democratic" state which forces the working class to fight and pay for the capitals endless quests of expansion and geo-political control. The externalization of these costs become obvious as the 95% of us who are not of the capitalist class and who interact with capital only as workers and consumers are forced to pay for those costs with lowered quality of life, deteriorated environment, and diminished expectations for our families solvency. These conditions amplify to a point where pubic outcry becomes audible either as strikes or rebellions of the working class, outrage and organizing against environmental (or similarly problematic) conditions and even professorial admonitions against the greed of unregulated capitalism.

Regulation on the other hand is a last ditch attempt to salvage the system from its natural tendency toward this downward spiral of self destruction. In times of crisis the more "level-headed" capitalists and their apologists seek to tinker with the system at its edges in order to tame the outrage, indignation, burgeoning rebellion of the "lower classes" and the "bleeding-heart liberal elitists" who can not stomach what "pure capitalism" wrought.

The great depression gave rise to Keynesian regulation, liberalization of labors right to organize (NLRB), and consequently massive public works projects were initiated to tame the struggling masses which capital had lost the ability to employ and pacify. In order to save itself the state stepped in to bridle the untamed mustang of capitalism gone wild. But the true ideology of the capitalist class expressed itself through the likes of Ayn Rand, and Milton Friedman whose belief in the virtue of greed and unrestrained capitalism was embraced by a generation of enthusiastic youth who rejected the Keynesian order as creeping socialism. These "true capitalists" spread their ideology through the political, intellectual and media classes who admonished the working class with pablum such as "trickle down", "the end of history" and "the ownership society" as they sold their drivel to all comers. The Democratic Leadership Council signed on and the Clinton administration sold us a bill of goods by undoing the regulations of the Keynsian era which were designed to prevent a repeat of the collapse of 1929.

So we have come full cycle and the "cooler-heads" of the capitalist class again have stepped in to stave off total collapse before it gives rise to lower class rebellion. But this new urge for regulation is coming up against hard corp ideologues of "free-market" deregulation so reaching agreement for a bail out is harder than expected.

But both roads seek to protect the system of wealth accumulation which keeps accelerating the division between the rich and the poor, the North and the South, the East and the West and seek to justify its continued reign as the only possible system.

But capitalism is not the only system of production. And it has show itself to be incapable of meeting the most basic needs of the mass of humanity to say little of the eco-system and other species. This current mode of production is based on the commodification of every thing and regardless of which wing of the capitalist class (the regulators or the free-marketeers) one sides with, this truth drives the actions of capital en-total.

We are long overdue for an uprising of the working classes to wipe away this destructive system and replace it with a centralized planned economy. Only a mode of production which socializes capital can take the type of action needed to educate the entire population from pre-school to graduate school, provide health care for all, protect our children and elderly from fear of hunger and abandonment, guarantee full employment at socially productive jobs and undo the worst damage to the environment caused by both forms of capitalism restrained and unrestrained.

Rather than a bail out of Wall Street we require a full take over of the banking system and financial institutions under workers control to provide full transparency in all transactions and a credit source for small business, home owners, working class people and the larger enterprises most of which should also be seized to assure they can be used to put people and the eco-system before profiteering.
Absolute common sense. Its so refreshing.
I agree totally. We need adult supervision in the playhouse, and that adult supervision cannot be just one kid standing on top of another kid's shoulders while wearing a long coat and a fake moustache. Capitalism is a vehicle and it needs to be driven by a safe and competent driver, not a reckless one. I think all evidence of late demonstrates the need for more government (i.e. someone looking out for *all* people) intervention, not less.
Unregulated capitalism is not "the enemy of capitalism", it is actually capitalism in its purest form. Rather, unregulated capitalism is an enemy of free, decent, just, and equitable societies.

I think this is largely right, in practice. At least partly because, if completely unregulated, a system (even a capitalist) can be gamed, and the more powerful players can game it much more easily than everyone else. (By the way, anthropoidape, I wanted to quote half a dozen things you wrote and say, "Yes!" This is just one of them.)

We are long overdue for an uprising of the working classes to wipe away this destructive system and replace it with a centralized planned economy.

My understanding is that command economies have proved to be failures in both theory and practice.
to channel the desires of both capitalists and consumers for more, for bigger, and for better into productive, sustainable economic growth.

I think you have missed the point entirely as evidenced by your statement above. More and bigger and better is never sustainable, because it's an ecomonic house of cards that will eventually tumble. You can prolong it with band-aids as the Congress is trying to do now. You can even revamp it as many are suggesting. But until we curb our gluttony and consumerism is no longer the driving force of our society we'll never fix it.
Rob St. Amant states, "My understanding is that command economies have proved to be failures in both theory and practice. "

Rob's is the usual response when the limits of capitalism are challanged. The concept of a centralized planned economy is reduced to the phrase "command economy" as if something about the such an economy commands one to act against their own self interest and for some "greater good" . Second Rob reminds us that such economies when tried were failures in both theory and practice. Of course these issues are enormous and will never be resolved in a blog post but we can look at some of them quickly here.

Was socialism (as it developed in the USSR, China, Vietnam, Yugoslavia, the eastern block and Cuba) a failure in both theory and practice?

Lets start with a quick look at the theory. Socialism as envisioned by Marx was never theorized to emerge first in the under-industrialized nations. In theory socialism was to be an outgrowth of the concentration of capital and the emergence of massive armies of industrial workers as were developing in England, France, Germany and the United States. In theory socialism required the productive capacity of fully developed industrial capitalism to provide the social surplus and forces of production which could be taken under the control of the working class organized on a factory by factory basis. These democratic organizations of workers in factory commities would determine and direct the economy in the interest of the class as a whole. Even the Bolshiviks under Lenin and Trotsky had no illusions about the prospects for socialism developing in the backward USSR (90%peasentry 10% industrial workers in 1917). Their writings after the revolution are full of warnings that socialism in the USSR could not develop without sucessful revoultions in Germany and Europe coming to their aid.
Of course Stalin had his theory of socialism-in-one county which contradicted both Lenin and Trotsky and which was more of an psudo intellectual exercise justifying the politics of the buracracy; which itself devloped and replaced the democratic organizations of worker's self organization, due to the isolation of the USSR and as a consequence of the failed revolutions in Germany, Hungary, and Austria. If one were to claim Stalin's theory was a failure they would be correct; but it would have little to do with the actual application of the dialectical methodology and historical materialism upon which Marx, Lenin, Luxumberg and Trotsky theorized about the transition from capitalism to socialism.

As for the "practice" of the post-capitalist economies even with the deformities which arose under the Stalinist regimes of the afore mentions nations some interesting economic conditions developed which when compared to capitalisms "practice" raises the quesion of what is success.

For example if we look at the USSR and the eastern bloc countries in particular specifically because they had the most time to devolop we find amazing productive capacity. Despite the fact that their county had to be industrialized in isolation from the west after having fought a four year civil war on top of fighting a three year world war and eighteen years later being invaded by the German Army and loosing 20 million lives to that invasion they were still capable of accomplishing amazing economic growth. These countries were able to provide full employment, full medical coverage for the entire population, free eduction for all, pensions for all, public transportataion as well as giving the west a run for its money both in the space race, the military race and the development of technology. Please do not misinterpert these comments to be an appology of for the crimes of the Stainist regimes rather these points are made to show that in "practice" a centralized and planned economy with a monoply of foreign trade can do things for the masses of the people that no capitalist county has been able to do to date.

In practice all but a few capitalist countries (not enough time or space to discuss the annomolies here, suffice to say they do not include the United States) are plagued with unemployment, crushing buisness cycles of boom and bust which leave those at the bottom of the heap living in fear of loosing their security.
Capitalism is capable of accumlating great wealth and and concentrating it in the hands of millions but in a world of billions it has not been able to meet the basic needs of any significant percentage of the population. Billions live in abject poverty in a world subject to the whims of the boys in the pin-stripped suits promising that the rising tide lifts all boats. If you believe that line of crap I have an economy for you to bail out on Wall Street.
The concept of a centralized planned economy is reduced to the phrase "command economy" as if something about the such an economy commands one to act against their own self interest and for some "greater good" .

Thanks for responding to my comment, and if I've used the wrong term, sorry about that--I thought they were interchangeable. I also intended no metaphorical message, either.

As I understand it, as a non-economist, a significant theoretical advantage that market economies have over centralized planned economies is that the former naturally provide price signals that can drive resource allocation, and they do it more efficiently than the latter. So, for example, if the centralized plan says we need so much of X, how do we know whether X is too much or too little? Well, there's demand. Demand filters back to the central planners, and they adjust either prices or the amount of X. Hmm, we think. Are the central planners actually contributing something that a market economy couldn't do on its own? Well, they might be mediating some of the unfortunate effects of a completely free market (people starving on the streets, maybe). . . but then it becomes reasonable to think of them playing the role of regulators in a market economy rather than central planners. (At least, this is best off-the-cuff answer I can think of. If I'm wrong, please correct me.)

I'm not a fan of completely unregulated markets, but I don't think it's necessary to go to the opposite extreme, either.
Rob St. Amant asks if market signals perform a better job than central planners would in directing an ideal economy (I hope I have restated the question appropriately). Rob's outline of the function of the market in directing production choices is basically correct. But it is based on the assumption that capitalism is an ideal economic system. However in the capitalist form of market economy everything and everyone is transformed into a commodity which contributes to the process of capital accumulation.

In an economy which does not place profit first all things and people are not commodities for exchange and exploitation. In such an economy market signals may be an adjunct to planning but are not the sole determinants for what and how things are produced. Choices about what is t0 be produced and how things are to be produced are made by the class of producers themselves not by stock holders and speculators chasing improved quarterly earnings reports.

In the market system real costs are often hidden as so many aspects of the production process are externalized and are never realized on the balance sheet. The externalized costs show up as destruction of the environment and our quality of life. For example. When the ozone hole was created due to the use of CFC's who paid for the increased rates of cancer in the southern hemisphere? The profit side of the equation was complete but the real cost in lost lives did not show up on the liability side of the balance sheet. When market signals directed Bethleham Steel and United Airlines to renege on their pension plans forcing retirees to reproletarianize themselves and work though their retirements at Home Depot how was the market equation balanced? When Aborignial people are driven from their land to make way for rationalization of their land to make way for capitalist agriculture or ranching capital accumulation is realized but the costs in destroyed cultures and lives are ignored. The externalities of the market economy destroys everything which it can not make into a commodity. Despite its protests against centralization the capitalist market economy actually centralizes wealth accumulation into the hands of a very few and poverty is spread across the mass of humanity. As such the market works well for capital accumulation but is a fetter upon the advance of human conditions.

The planned economy under democratic workers control is not concerned with the concentration of wealth. It becomes concerned with utilizing the productive capacity of society to meet social and environmental needs (the self expression of the enlightened self interest of humanity acting for itself not for capital accumulation). As such non-profitable production can be employed and subsidized by other sectors of the productivity when such processes meet social needs. The central planners being the representatives of the producing classes contribute in a way market signals can not first and foremost because they are conscious of social need as expressed through democratically agreeded upon plans for production. Compared to the unconscious mechanisms of the market, planning has a greater chance of eliminating the excesses of exploitation, war and environmental destruction that the market has blessed us with for its entire history.
if you want to pass around blame, blame reagon for deregulation. place the blame for all of our problems at the feet of the conservative hero, where it rightly belongs.